Small and Lower Middle Market ABL Lacks Accurate Reporting

Happy Holidays from US Capital Partners! (San Francisco, Ca)Asset-based lending (ABL) is on the sharp rise again. In the US and Canada, syndicated asset-based loan issuance has increased by more than 24% this year, to $82 billion year-to-date, compared to the same period last year, according to Dealogic. Half of the ABL loans this year, or $41 billion, have been refinancings.

Unsurprisingly, this has triggered a lot of discussion about ABL trends. If you are a smaller business, however, be careful not to be misled by some of the conclusions.

The Reporting Gap: Small and Lower Middle Market Companies Remain Underserved and Under-ReportedThe ABL news in the media tends to focus overwhelmingly on large-cap lending. You only need to look at the examples provided: Kaiser Aluminum’s recently closed $300 million revolving asset-based facility, Brazilian JBS’s $850 million asset-based loan, and Sears’s record $3.3 billion asset-based loan.

The problem is that the small-cap and large-cap ABL marketplaces are very different to each other. A lot of the analysis therefore isn’t very relevant to a smaller company looking to borrow. No one really explains or provides good statistics on small-cap ABL, although smaller businesses are in desperate need of this information.

Recent Trends in Small-Cap ABLAccording to recent reports, for instance, borrowers are now finding better “covenant light” ABL terms and conditions. While this may be true for larger companies, it is not always the case for smaller businesses. In small-cap ABL, covenants have actually been getting a little more stringent, as lenders have been imposing some additional restrictions to push pricing down on the higher-quality, custom end of ABL deals.

In small-cap ABL, credit lines are also more differentiated now, with variable costs depending on the creditworthiness of the borrower and the structure of the deal. In short, there is now a much greater variety of products for borrowers, rather than simply lower pricing across the board.

Getting a Deal DoneThe ABL marketplace for small businesses is highly fragmented, and there remains great variance in pricing. It can be difficult for a busy CFO or CEO who doesn’t inhabit the terrain to get the best possible financing for a small or lower middle market business. It’s therefore worth approaching a small and lower middle market specialist lender like US Capital Partners, LLC who can provide financing tailored specifically to a company’s credit profile and collateral, from ABL to cash flow, quickly and efficiently.